US stocks slumped yesterday as investors worried that the proposed $700 billion bank bailout would be delayed, following a heated debate in Congress. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that any delay would put the economy at risk. But lawmakers questioned the lack of detail in the plan and whether more provisions are needed to protect the taxpayer.
The current proposal will allow the Treasury to buy up, at a discount, bruised assets held by troubled financial firms and then sell them later at a profit. With the bad debts off companies balance sheets it is hoped that banks would be willing to lend to each other again, therefore loosening up credit markets.
The Dow Jones dropped 161.52 points to close at 10,854.17, the S&P 500 slipped 18.87 points to end at 1,188.22. The Nasdaq fell 25.65 points to finish at 2,153.33.
Bank of America finished 2.5% lower after Oppenheimer & Co analyst Meredith Whitney cut her profit outlook on the No. 2 US bank. She cut her profit outlook on the company and forecast more dividend cuts for banks in general. As well, she suggested that the government's rescue plan had little hope of improving core fundamentals over the near and medium future.
General Electric also suffered after a downgrade, courtesy of Goldman Sachs, who cut their profit outlook for the diversified manufacturer. Shares declined 4.6%.
Technology shares had led an early rally as investors felt they were the best placed to gain if the government's bailout plan is passed. But as the congressional wrangling continued through the day technology shares also turned negative. Apple Inc slipped 3.2%, while Microsoft edged 0.2% lower.
After the close, Warren Buffett's Berkshire Hathaway surprised investors, giving the financial sector a huge boost. Goldman Sachs announced that it will receive a $5 billion infusion from Buffett's investment vehicle, in return for preferred stock as well as warrants to purchase $5 billion of common stock with a strike price of $115 per share. Berkshire have five years to exercise the warrants. Shares in Goldman Sachs jumped 8.4% after the news, while Morgan Stanley surged 9.5%.
US light crude oil for October delivery fell $2.76 to close at $106.61 a barrel. COMEX gold for December delivery dropped $17.80 to settle at $891.20 an ounce. Treasury prices rose, lowering the yield on the 10 year note to 3.81% from 3.83%.
The Nikkei gained 24.44 points to close at 11,982.59 this morning after banks took advantage of depressed prices to invest in overseas rivals. Mitsubishi UFJ Financial Group Inc, the country's biggest lender by value, climbed for the third day after saying it will buy as much as 20% of Morgan Stanley. Nomura Holdings Inc continued a three day 26% rally after agreeing to buy the European unit of Lehman Brothers.
The Hang Seng is currently 261.48 points higher at 19,134.3 after crude oil prices dropped, easing concern inflation will curb demand and erode earnings. Cathay Pacific Airways Ltd rose 2% after crude slipped yesterday. CLP Holdings Ltd, Hong Kong's biggest power utility, climbed 1.6%, leading gains among utilities as investors favour stocks that can withstand a slowing economy.
The FTSE 100 is currently 6.68 points lower at 6,129.44. British Energy leads the risers, up 6%, after Centrica said it was in talks with France's EDF about taking a 25 percent interest in the nuclear operator. Smiths Group is 3.1% higher after posting a 10% rise in underlying full year profit and announcing that it has won a long-term design and supply contracts on US military communications programmes worth a potential £225 million.